Shyster is correct. The expatriation rules are no longer
subjective. If your client has a net worth less than $2
million, had an average US tax liability less than $127
thousand for the past three years, and can certify that he
has filed his U.S. taxes, then he can avoid the section 877
expatriation rules. Either way, he will need to file Form
8854 and I-407. Until he files these forms, he will be
taxed as a U.S. citizen.

The good news is that even if he cannot avoid the
expatriation rules, he will probably not owe additional U.S.
tax. He will have to file (I think Form 8854) for 10 years.
He would only owe U.S. tax if he has U.S. source income.
The sourcing rules for this purpose are broader than the
normal sourcing rules and include income from CFCs that were
earned prior to expatriation (you should check to see if the
company he owns part of was ever a CFC - he may have already
had a section 1248 inclusion if the entity went from being a
CFC to a Non-CFC).

Also, if he comes back to the U.S. for a 30 day period
during the 10 year expatriation period, he will be treated
as a resident of the U.S. for that year. Lastly, it is
theortically possible that he could be denied a visa to
enter the U.S., but apparently the government has not yet
done this.

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L K Williams <lanny[at]loxinfo.co.th> wrote:

- quote -

What are the non-tax reasons for renouncing?

In Furstenberg v. Commissioner, 83 T.C. 755 (1984) the Tax
Court said that "principal purpose" means one of the main
purposes. Just because it's a purpose doesn't make it a
primary purpose.

Stu

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The issue of your client's subjective motivation for
expatriation is irrelevant to whether Section 877 applies to
him.

The Jobs Act of 2004 amended 877 to remove the reference to
expatriation for the purpose of tax avoidance and instead
inserted an objective test for application of Section 877,
and two exceptions based on objective criteria.

The Sec. 877 expatriation regime therefore will apply to
your client regardless of his motives for renouncing US
citizenship unless he fails to satisfy one or more of the
three objective criteria in Sec. 877(a)(2) (he most likely
won't qualify for the dual citizen exception, the only one
potentially available, because he was most likely a US
resident for several years as a child; however, you might
consider whether he could meet the "closer connection"
exception to the substantial presence test under Sec.
7701(b)).

If you bring up the motivation issue, you may get some tea
and sympathy from the IRS, but you won't get an exception to
the expatriation tax.

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L K Williams <l...[at]loxinfo.co.th> wrote:

- quote -

One of the key's too getting a ruling from the IRS that
expatriation is not for tax motivated reasons is
demonstrating a closer connection to a foreign country - as
in birth, cultural and political relationship, etc. I am in
the process of planning for the same issue. I am a tax
attorney in Florida.

rpinder[at]gmail.com

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L K Williams <l...[at]loxinfo.co.th> wrote:

- quote -

Are you sure he really is a U.S. Citizen?
The person best qualified to answer this question is:
Director - Overseas Citizens Services
Room 4817 N.S.
Department of State
2201 C Street N.W.
Washington, D.C. 20520

Sorry, no email address was found.

- quote -

Is he paying U.S. taxes at this time other than just filing
forms?

Dick

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I am in the process of researching the rules about
expatriation when a person renounces US citizenship. Since,
in all my years of working with expats, I have never come
across this situation I am looking for any experiences that
other posters may have had.

My client is a US citizen because his father was a US
citizen. His mother was French and he was born in South
Africa.

He is now 31 years old and has lived only 4 or 5 years,
between the ages of 5 and 9, in the US.

He has two children but cannot obtain US citizenship for
them because he did not live in the US for at least 2 years
after he was 16.

He draws a salary from a non-US employer and pays all Thai
taxes. He files a US tax return each year. He owns shares
in the non-US company which has recently gone public. These
shares pay very substantial dividends and are worth a
fortune.

He has no assets in the US, receives no income from US
sources, and has no known relatives in the US.

Now, if he renounces his US citizenship, can we argue that
his motives are not tax based? He is a US citizen because
of his father's decision to register his birth. He was not
born in the US, for all intents and purposes has not lived
in the US, and probably never will. He has not paid into
Social Security and will probably never qualify for
benefits.

This is a new client, he just came to me yesterday, and I've
just started my research. I'm not looking for book answers
or comments. I would like to know if any one on MTM has had
any experience with the expatriation rules and what those
experiences were.

Any help would be much appreciated.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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